Sentiment

Stocks are holding modest gains in a day of relatively uneventful market action Wednesday. After a 56-point gain Tuesday, the Dow Jones Industrial Average opened modestly higher, but with no economic data and no earnings of broad market significance to guide the action one way or the other. A modest morning rally developed with help from some of the energy-related names after crude oil added another 39 cents to $71.49 a barrel.

However, the major averages came off their best levels of the day following the release of the latest Beige Book from the Federal Reserve, which noted some signs of stabilization in economic activity and improvement in real estate markets. Maybe some investors were expecting a more upbeat assessment of economic conditions because the Dow Jones Industrial Average suffered a modest pullback on the news.

I've thought that internet learning was destined to be a significant component of educational spending since 2000. That was the year that K12 Inc. (LRN) was founded. That was also the year that I put money into a private placement of Class.com equity. The companies are very similar as they deliver distance learning content over the internet, except that Class.com limits itself to grades 9-12. The similarity also departs in revenue production as K12 generates sales of $32oMM while Class.com is much smaller. After long gestation periods, both started making money several years ago.

In addition to my stake in the private company, I've put together a position in K12 as well. Like many stocks, it has made a nice recovery from its lows. I think it will continue to do well as it is in the sweet spot of education. It can save school boards brick and mortar expenses, enhance charter school curriculum, and remains popular with home schoolers. It works for remedial as well as advanced placement. Since a teacher is involved, even the teachers unions aren't adamant about killing the process.

With tight school budgets, short sellers identified LRN as a candidate for decreased funding and resultant revenues. That hasn't happened, but the short interest is still present. And what a presence-it's huge! At mid month, there were over 7.5M shares borrowed and sold short. That is 39% of the float. At present volume levels it would take 63 days to cover those shorts. Take a look at the following table:

Education as an investment sector is often viewed as a safe, defensive play because education is, relatively speaking, a constant, and times of economic stress usually increase higher education enrollments as people seek to boost their job skills.

On a demographic basis, we believe that the U.S. education sector is overlooked as great long-term growth play, especially given that total enrollment in grades prekindergarten-12 is projected by the U.S. Department of Education’s statistics center to grow 10 percent (as of 2005) by 2017.

In this week’s Barron’s cover story “Shorts Story” they report on a small North Carolina-based research firm called Short Alert who have been recommending stocks to short since 1998.

I am being very selective about purchasing common stock. In fact, my Speculative and to a lesser extent my Permanent Portfolio(s) consist of a higher percentage of bonds, preferred stocks and commodities, almost all via ETFs. Rental real estate has been advanced to a higher amount than ever in my holistic portfolio, as well as tax strategies to keep what I earn. Not one who is prone to panic with each day's news, I try to be well read from a variety of viewpoints, especially the Financial Times and Wall Street Journal, a few blogs and Bloomberg, for starters. I also subscribe to a few eclectic financial and economic publications that I may discuss in a future post.

I am concerned about inflation, creeping socialism, the geo-political status of world hot spots and the victim mentality that appears to be resonating from a form of class warfare not seen in the United States since the 1870s. That said, there is always a bull market somewhere and I have been toying with various stock screens to find gems for possible inclusion to my holdings.

At the end of each trading week, Hillbent scans for the equity market for potential anomalies which exhibit extremely oversold and overbought conditions. Past observations have revealed that such candidates may experience reversal corrections to the upside or downside once the market reconfirms that their fundamentals remain solidly intact or relatively poor. From a contrarian perspective, these lists may also serve as a precursor to changes in institutional sentiment and underlying fundamentals.

(The purpose of this report is not to provide specific recommendations, but instead serve as a time-saving reference tool and starting point for investment ideas as the upcoming trading week unfolds. Of course, the results generated are not always perfect and users are strongly encouraged to perform their own due diligence on these names. Note that overbought and oversold conditions are based upon proprietary algorithms and quantitative models instead of conventional technical analysis indicators. As a supplement to this report, please refer to our Market Condition Summary to determine if market direction trends support a bullish or bearish investment bias over short-term, intermediate, and long-term timeframes.)

K12, Inc. (LRN)

F2Q09 Earnings Call

On November 15, Bill Simpson wrote an analysis of Grand Canyon Education (LOPE). In their market debut Thursday, Nov. 20, shares ranged between $9.49 and $11.90 during the session. Earlier that day, the company said it priced 10.5 million shares at $12 a piece, at the low end of a downwardly revised price range.

The text of Mr. Simpson's original writeup follows:

F1Q09 Earnings Call

November 14, 2008 8:30 am ET

Q4 2008 Earnings Call

September 9, 2008 8:30 am ET

K12 Inc. (LRN)

Q1 2008 Earnings Call Transcript

By Heather Bell

Although Russell Investments is known for its annual reconstitution, it does add IPOs to its indexes on a quarterly basis. At the end of the first quarter, it will add 70 initial public offerings to the Russell Global Index; 12 of them are U.S. stocks that will be included in the broad-market Russell 3000 (IWV). Please note that the additions will not replace existing components.

TWST: We'd like to begin with a brief historical sketch of the company and a picture of the things you are doing right now.

K12 Inc (LRN) is expected to make a public offering of its stock this week. The company offers proprietary curriculum and educational services to virtual public schools serving children in kindergarten through grade 12.

All quotes are taken from the company's most recent SEC filing.